When potential donors are deciding whether a charity is trustworthy, the most direct way is to look up its annual report which shows its financial situation.

Items such as the amounts of donations collected, administrative costs, fund-raising costs, service and programme costs will all be in the report. But these numbers may not reveal the full picture as little is said about how funds are used.

Last December, charity watchdog theidonate.com was set up in Hong Kong. It uses 'Charity Navigator', the largest and most widely used charity guide in the United States, to grade charities in Hong Kong.

Idonate looks into the fund-raising efficiency - the ratio of fund-raising expenses, charitable project expenses, staff salaries and administrative costs to total expenditure - of a charity to determine its operational efficiency. Each factor is rated using a 10-point system.

Fund-raising efficiency measures the cost of generating every HK$100 charitable contribution. Charities that use less than HK$10 to generate HK$100 of donation are awarded 10 points.

Take Unicef's annual report in the 2009 financial year for example. It says 87.25 per cent of funds raised were spent on service and programmes, with administrative costs at 7.1 per cent and fund-raising costs at 5.65 per cent.

The cost of raising everyHK$100 was about HK$7, which was quite efficient, and the administration costs were reasonable.

But idonate was not able to grade Unicef's performance because there were no details on the usage of funds.

Bonita Wang, spokesperson for iDonate, said: 'Unicef transfers most of the donations it receives to its New York headquarters. Since their audit reports did not show details of how funds were used, we could not ... come up with a rating for them.'

This is a common problem among international charities that raise funds locally but does not conduct any programmes locally.

Wang said one good example of a transparent charity is the Child Welfare Scheme, a charity that provides education, health care and social opportunities for disadvantaged children in Nepal.

'Even the Hong Kong branch only raises funds, it offers detailed information on staff costs, research and administrative costs in Nepal. Those numbers are tied to the local audited report, giving the public a clear picture of how donations are spent,' she said.